MMR could stifle remortgage market, says Moody’s
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If adopted, the Financial Service Authority’s proposals in the Mortgage Market Review could mean borrowers are unable to remortgage due to the more stringent affordability and income verification tests proposed, says Moody’s.
If introduced it expects to see higher defaults and possible losses in the sub-prime market.
Moody’s is especially concerned for borrowers with negative equity, adverse credit, self-certified income and interest-only loans.
Moody’s believes these borrowers will be unable to refinance if they cannot pass the more stringent affordability and income verification tests proposed.
It says: “As a result, when interest rates start to increase and borrowers’ capacity to make their existing mortgage payments becomes endangered, their inability to remortgage could potentially lead to an increase in arrears levels, higher defaults and an increase in back-ended losses in non-conforming securitisations.”
Moody’s believes the proposals will have less of an impact on the prime market than on the non-conforming market, as the majority of non-income verified lending in this segment is through the fast-track product, where the borrower is not requesting a self-certified product.
Additionally, although the refinancing market has tightened for prime borrowers, it is not as challenging as the non-conforming market.
From a credit perspective, Moody’s is of the view that, once adopted, these proposals should benefit new UK RMBS securitisations as well as master trusts with revolving pools, as theincome verification processes and stressed affordability tests will be more conservative for the mortgage loans included in the transactions.
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Readers' comments (9)
Anonymous | 2 Nov 2009 4:42 pm
The FSA has never had or never will have an understanding of the Mortgage Market so as they are on PAYE they dont give a dam if the Mortgage Market fails they will still get paid .
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Anonymous | 2 Nov 2009 4:59 pm
The FSA are not interested in the mortgage market or the consumer, they are only interested in a job creation program for themselves. The mortgage market will never recover while the FSA is still regulating and stifling this industry.
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Dale Knight | 3 Nov 2009 10:00 am
For many years mortgage lenders and indeed intermediaries have profited from borrowers regularily re-mortgaging and using equity. A tightening of lending will ultimately hold back boom and bust trends for the long-term but with many years of excess there has to be a period of levelling for borrowing which is what we are all going to have to face over the coming years. Intermediaries must therefore look at other ways to fund business models as the return of the re-mortgage markets of before now seem long gone.
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Michael White CEO Email Mortgages | 3 Nov 2009 10:11 am
The need for a return of specialist lenders who understand the definition of mortgage underwriting will never be greater and yet the opportunity for this will never be lower due to the myopic views of the FSA, fuelled by many commentators who should know better and accepted by the general public's ignorance and therefore over zealous belief in everything they read in the newspapers!
When brokers or indeed anyone that realises many of the proposals recommended by the FSA have not been considered against the wider implications, we are deemed to be uttering biased views. Moreover, we become the 'accused' in the blame game being played by far too many.
Coming back to reality, first we had Fitch and now Moodys explaining in relatively simple terms that the consequences to the mortgage market and therefore ultimately the wider economy will be nothing short of disastrous if the FSA are allowed to implement what can only be compared to 'Slash and Burn' tactics.... I truly despair because it is becoming evermore apparent the lunatics are indeed running the asylum, or put another way, too many people in positions of influence today are simply and quite hopelessly divorced from reality.
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Michael Norwood | 3 Nov 2009 6:09 pm
Check out the MMR paper - it actually doesn't have default rates for self cert and fast track separated out,(they dont have those figures)but thats what their entire case (for banning self cert and fast track) rests on.Its understandable therefore,that the default rates are higher in this category becasue it includes true self cert.And who would be hit hardest in such a deep recession?Yes,the self employed.Also, they use the default rates as of 1st qtr 2009.No historical evidence of defaults from earlier years.I could not imagine (as the FSA are saying) that lenders would persist with fast track products if they saw a higher trend of arrears etc.Those products would be withdrawn immediately.Yet they weren't.My only conclusion is that lenders themselves didn't see any problems with self cert or fast track until the recession hit.But can you really prevent arrears in the deepest and longest recession in living memory?I don't think so.
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David Richardson MCIBS | 4 Nov 2009 2:15 pm
Having read the MMR document one of the themes is to " protect the public from themselves ".
Now I fully agree that the Lender should have final say on affordability after all it is their money and the final decision on the quality of lending they want to accept should be theirs.
I also agree that the broker should help the client check that they can afford the monthly payments before applying.
HOWEVER : Who really knows if the mortgage is affordable and within their monthly budget ? I would state the clients / applicants !
In this country we are taking away personal responsibility for their actions from each individual member of the public in a dumbed down nanny state. At school part of HOME ECONOMICS should be that every member of our society can learn how to work out their own personal monthly budget in adult life IMO.
If you apply for a mortgage that you can't afford and have pushed your monthly affordability beyond its outer limits I would think its nobody's fault except your own.
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David Richardson MCIBS | 4 Nov 2009 2:15 pm
Having read the MMR document one of the themes is to " protect the public from themselves ".
Now I fully agree that the Lender should have final say on affordability after all it is their money and the final decision on the quality of lending they want to accept should be theirs.
I also agree that the broker should help the client check that they can afford the monthly payments before applying.
HOWEVER : Who really knows if the mortgage is affordable and within their monthly budget ? I would state the clients / applicants !
In this country we are taking away personal responsibility for their actions from each individual member of the public in a dumbed down nanny state. At school part of HOME ECONOMICS should be that every member of our society can learn how to work out their own personal monthly budget in adult life IMO.
If you apply for a mortgage that you can't afford and have pushed your monthly affordability beyond its outer limits I would think its nobody's fault except your own.
Unsuitable or offensive? Report this comment
David Richardson MCIBS | 4 Nov 2009 2:15 pm
Having read the MMR document one of the themes is to " protect the public from themselves ".
Now I fully agree that the Lender should have final say on affordability after all it is their money and the final decision on the quality of lending they want to accept should be theirs.
I also agree that the broker should help the client check that they can afford the monthly payments before applying.
HOWEVER : Who really knows if the mortgage is affordable and within their monthly budget ? I would state the clients / applicants !
In this country we are taking away personal responsibility for their actions from each individual member of the public in a dumbed down nanny state. At school part of HOME ECONOMICS should be that every member of our society can learn how to work out their own personal monthly budget in adult life IMO.
If you apply for a mortgage that you can't afford and have pushed your monthly affordability beyond its outer limits I would think its nobody's fault except your own.
Unsuitable or offensive? Report this comment
David Richardson MCIBS | 4 Nov 2009 2:15 pm
Having read the MMR document one of the themes is to " protect the public from themselves ".
Now I fully agree that the Lender should have final say on affordability after all it is their money and the final decision on the quality of lending they want to accept should be theirs.
I also agree that the broker should help the client check that they can afford the monthly payments before applying.
HOWEVER : Who really knows if the mortgage is affordable and within their monthly budget ? I would state the clients / applicants !
In this country we are taking away personal responsibility for their actions from each individual member of the public in a dumbed down nanny state. At school part of HOME ECONOMICS should be that every member of our society can learn how to work out their own personal monthly budget in adult life IMO.
If you apply for a mortgage that you can't afford and have pushed your monthly affordability beyond its outer limits I would think its nobody's fault except your own.
Unsuitable or offensive? Report this comment